Eligible Businesses Should Heed the Proposed Deadline-
The House Ways and Means Committee recently advanced a bill that gives businesses a proposed deadline of January 31, 2024 to file Employee Retention Credit (ERC) claims. Known as the Tax Relief for American Families and Workers Act of 2024, the bill passed by a 40-3 vote. Under current law, April 15, 2024, is the deadline to file claims for the 2020 tax year and April 15, 2025 is the deadline to file claims for the 2021 tax year.
Although the earlier deadline provides further proof that Congress and the IRS are serious about addressing ERC fraud, it also increases the risk that eligible businesses may miss the filing deadline. While the bill faces significant opposition from segments of both political parties, and it is unclear when, or if, it may be enacted, eligible businesses should make every effort to file ERC claims before the January 31, 2024, proposed deadline.
Background on the ERC
The ERC is a legitimate, refundable tax credit designed to help businesses that continued to pay employees while they were shut down due to the COVID-19 pandemic or that experienced a significant decline in gross receipts in 2020 or 2021. While Congress designed the ERC with the laudable goal of helping businesses survive the COVID-19 pandemic by encouraging them to keep employees on their payroll, ERC fraud has run rampant and unscrupulous promoters have pushed businesses that do not qualify for the credit to file improper ERC claims. For almost two years, the IRS has engaged in a concentrated effort to stamp out fraudulent ERC claims.
Tax Relief for American Families and Workers Act of 2024
The full House of Representatives may vote on the bill as soon as January 29 and it is subject to change by the House Rules Committee. The Senate must also pass an identical version of the bill and then President Biden must sign the bill before it becomes law. Even if the bill is signed into law after January 31, the January 31 deadline for filing ERC claims will likely apply retroactively. The bill is a $79 billion package of individual and business tax breaks mostly paid for by sunsetting the ERC early. The bill increases the child tax credit and eases rules on research and development expensing, bonus depreciation and net interest expensing for businesses.
Besides limiting ERC claims to those filed before February 1, 2024, the bill also contains provisions that increase penalties applicable to ERC promotors and includes tools that allow the IRS to pursue improper claims that have already been filed. We previously wrote about those provisions here.
The Takeaway
Eligible businesses should file ERC claims no later than January 31, 2024, or risk missing the proposed new deadline. Businesses that are considering filing an ERC claim should heed the IRS’ advice and thoroughly review their ERC eligibility and consult with a trusted tax professional before claiming the credit. Businesses that have already claimed the ERC but now doubt their eligibility should consult legal counsel about their options before they are contacted by the IRS.
Businesses that submitted an ERC claim should review their eligibility with a trusted tax professional, especially if the business hired a tax credit promoter to file their claim. The ERC withdrawal program and Voluntary Disclosure Program offer taxpayers a limited-time opportunity to resolve their ERC claims on favorable terms, but taxpayers must act quickly before the programs expire.
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